Brainstorming BlackBerry 10: Hardware back in black!

Over the last week I've spent a fair bit of time reading and digesting the thoughts in various bullish and bearish analyst reports on Research In Motion. I noticed that most analysts seemed to be estimated BlackBerry 10 hardware to sell for about $400. This figure, known in the industry as ASP (Average Selling Price) is the price device manufacturers sell to operators at. It is NOT the retail price you pay for an unlocked phone.

RIM's current portfolio ASP is just under $229, and the average device cost is actually closer to $240-250, so they're losing money on hardware. Keep in mind this cost calculation fully absorbs all costs that RIM must account for in reporting numbers. It's not just a bill of materials as given in a teardown analysis.

Anyway, I had a hard time believing that RIM would actually sell BlackBerry 10 hardware for only $400, and I was fairly vocal about it on a few blog posts. Then we saw at least one analyst publicly estimate a $450 ASP.

Since then, I've come across two data points to support the idea that a $400 ASP for BlackBerry 10 is totally out to lunch.

Point 1: The BlackBerry Bold 9900 has an ASP, in the UK market, close to £280, which translates to over $440 USD. If the current (and quite old) high end device from RIM can sell at that price point, it seems absurd to believe BlackBerry 10 would sell for less.

Point 2: Another European data point suggests that one major (and I do mean major) operator intends to sell the devices for €450, which equates to about $587. Keep in mind this retail pricing usually represents a markup over the device ASP, meaning carriers make a profit on selling off-contract phones.

As we come across more data, it should be fun to discuss it in blog posts and in the forums. But I'm pretty confident in saying that RIM should be making healthy profits on BlackBerry 10 hardware.

There are still plenty of unknowns. We don't really know what RIM's cost will be (hence gross margin). We don't know what percentage of sales will migrate to BB10 in the first few quarters. We don't know what they plan to do later in 2013 to propagate BlackBerry 10 towards the lower end of the portfolio, nor what the price points and profit will be like on those devices. We don't know how service revenues will change over the next few quarters.

Reader comments

Brainstorming BlackBerry 10: Hardware back in black!

Whatever the price ends up being, they need to make sure they balance being competitive with making money. I think they need to undercut their competition with price a bit to attract customers and build a solid base for their platform. Hopefully loyal upgrades will push up the initial sales and get this platform off to a great start!

i don't agree with undercuttign comeptition. the way i see it is that when a consumer see this they will automatically think of the talk about how RIMs products are dated and not up to par, and for slightly more they can go with the "better" iPhone or Android device.

matching the price lets people know that you have confidence in your products abilities to compete at the high end level not that you are pricing lower to get sales from an inferior product. it also won't look good if they set the price lower to gain acceptance and then jack the price up if the products are flying off the shelves.

a good stratagy might be to release the device and have a BB10 release sale at a slightly reduced price, give folks the impression that they can get it for cheap and its worth it to try

At this point the cost of the phone isn't going to stop me from buying it, and I think RIM knows this as well. I have been waiting to update my current plan (in the US) for what will be 6 months come the "projected" release of BB10. On contract I expect it to be comparable to that of the latest iPhone, Android, and Windows phone. Off contract I would expect about the same price point as well.

I think you and the very first post misunderstood the article. Its not discussing how much carriers plan to charge us the public, its discussing how much RIM will sell their phones to the carriers. For example, if RIM sold each BB10 phone to a carrier for $450 the carrier subsidizes that cost usually to around $199 if you sign a contract. On the other hand, if you want to buy off contract, the carrier will set the off contract price to maybe $599(these are all just examples not real pricing) and therefore the carrier makes a pretty good profit on off contract devices sold.

I did understand that this was speaking to the price that RIM would charge carriers for the devices. I thought that would have a correlation with the price customers would be charged. Maybe I'm misunderstanding that?

Thanks, Chris. I'm with you : $400.00 seems absurd. With the changes BlackBerry has made i also wouldn't be surprised if they had streamlined their manufacturing expenses to pave the way to both higher quality control and profitability...

I think that it is important to remember that carriers want BB10 to succeed. With this in mind, I think it is reasonable to assume that RIM will give carriers a little bit of a discount. By no means selling BB10 devices for only $400, but still, not as high as close to $600 either. (I'm assuming some sort of tiered system based on volume would work best for everyone)

In return the carriers could push BB10 harder than they usually would, and even push those savings onto consumers by means of a better-than-android, better-than-ios subsidized contract.

I'm sure all of that would be ironed out in boardrooms,.but it would be interesting to know the teamwork happening behind the scenes with RIM and carriers.

$400 is rediclous. If you want to compete with the Androids and iPhones of the world, you need to be compeditive in their price range. If the new BB10s price over $250 it will be the death of RIM, No one is gonna pay more then that considering they can get a new iPhone for the same price.
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I’d rather be a Black Sheep than an iSheep any day.

its not an on contract price, its a price that RIM will sell the devices to carriers at, the carrier will then sell you it on no contract for say $700 or on a 1 year term for 400 or 2 for 300 or 3 yera for 300, RIM does not set those rate but they do set a wholesale rate which we as consumers never see

You just posted a comment and didn't read much at all. At least I'm taking the time to read and comprehend each article written by chris, in order to educate myself as a consumer on how companies work. You didn't even read it right. Sigh.

$400 appears low but using UK's price of £280 to support a price above $400 is misleading. I am not sure but I believe that if you compare the retail price of say a Canon 5D III in the USA and in the UK the price will not be equal after accounting for foreign exchange.

Although it would be logical that a BB10 phone should sell for more than £280 based on the information provided.

If RIM TRIES for a SECOND to sell the phone for more then it's worth ala Playbook, might as well fold before they go too far into the red with hardware sitting. $250 was a reasonable price for a Playbook, now with the 4G $300-350, I can see $350-400 for a BB10 and start pricing the Playbook higher the closer to BB10 it goes...anymore and it would be a gamble

I want this to succeed, not flop before the gate even opens. RIM already proved they aren't going to push product on the merits of past Blackberry success...I mean WAY in the past success.

Carriers aren't going to sell the devices for less than they pay for them though unless they are just dead inventory that has no hope of selling so the price they pay is effectively the retail floor and will only go up from there. An ASP to the carriers of >$450 is going to mean a retail price of minimum $500 if would imagine.

Im not sure they/we are misunderstanding the article, I think we are focusing on what we're passionate about. However, regardless of what RIM sells to carriers at, they need to take a page out of the Nexus 4 book. Right now RIM should be focusing on getting back the market share they lost. If the NEXUS 4 can sell for $299 factory unlocked, RIM needs to focus on getting the cost of production down to the point where they can compete with that. I'm not advocating a race to the bottom, but I think $400 factory unlocked would be a great price point. As per the price they should sell to carriers at, i'd say, they NEED to undercut the iPhone 5. It's time to be realistic, most of Apple's buyers sees the Apple brand as almost a luxury brand, so they are willing to spend extra to get it. You wouldn't spend Ferrari money buying a Toyota, no matter how good the Toyota is! NOW...they are both cars, both get you from point A to B and in great style too, but you get what I'm saying. I have a iphone 4s and a 9810. I plan to get a BB10 at launch to replace the 9810 (which I payed $500 for and have been secretly angry about lol...so many better phones are out for way less a la Nexus 4 yet RIM has the audacity to charge $500 for the 9810...). I love my BB so I hope they do the smart thing and don't make the same mistakes they did with the playbook.

Look, when the price of the playbook was $500ish, they didnt sell. When the price of the playbooks were $100ish, they really didnt sell too many either when you put it in perspective.
Ipad Minis were $300-400ish and they sold ALOT.
WHY it seemed that is what people wanted.
Bottom line is, its not the price, its giving people what they want and letting them know about it first.
The idea that you have to put out a "cheaper" price phone is not the answer. If it is worth it, and that much better than what is out there, people will buy it.
If Rim used the business model of planning to sell phones only if they are the lowest cost than that is a game they would lose. They need to strive to be the best and the $ will eventually come as word (and hopefully advert/marketing) will spread.

Why doesn't anyone read for comprehension anymore?!? Your comment has nothing to do with what this article is discussing. Read my reply above to the second comment on this article and then read the article again.

Point 1 suggests a rate of about 1.57 USD to the pound, while point 2 suggests about 1.30 USD to the pound. This may affect your analysis. I think it's actually at about 1.30 USD to the pound right now.

Or perhaps point 1 was referring to an avg FX rate since the 9900 has been available or something?

[Edit: Nevermind, I just noticed I read too quickly over the £ and € symbols... Seems Chris is pretty much spot on!]

Let me try and clarify what Chris wrote in his article. I think what we weren't understanding is that the ASP plus a bit of a markup by the carrier equals what customers call the out right sales price. Carriers apply a subsidy when you sign a contract which lowers the cost of the phone to something like $99 on a three year term.

Chris is saying $400 is a low ball estimate for a BlackBerry 10 phone. An iPhone 5 without subsidy on Apple's Canadian site is $699. A BlackBerry 10 would be a device definitely on par, if not better, with an iPhone5. So the ASP should be higher.

He points out that Bold 9900's are selling with ASP of $440, so a BlackBerry 10's hardware should definitely be selling for more than that.

The ASP of $450 does make sense in markets like North America, which is likely what the analyst was pointing at, which probably means a MSRP of $600-650, but with carrier subsidies will probably bring the contract price down to $150-199.

The ASP in other markets will vary, as the MSRP for the 9900 in the UK is much higher. I was in the UK when it was first released and the unsubsidized price was around £550, substantially higher than its ASP of £280 and higher than the MSRP of most high end phones in North America.

So how much does Bell/Rogers/Telus actually pay for a 9900 that they then 'subsidize' by 'several hundred dollars'? If you catch my drift... I've always wondered this, and wondered why RIM doesn't sell hardware direct to consumers.

Chris, do you have any sense of how much the subsidy carriers can offer on BB plans compared to other platforms?

My impression is that Apple strongarms carriers for very high premiums, possibly demanding a monthly cut of the subscriber's plan fee... and that Android is not doing that at all, as Google's business model is eyeballs and clicks on ads... I am also under the impression that BB subscribers have a monthly fee to RIM, but also that the devices efficiency is appealing to carriers... so what I'd like to know is how much of a subsidy carriers are inclined to provide to subscribers if they lock into a plan? I would rather NOT go on another 3 year term with Virgin Mobile Canada, but would consider it if the subsidy is sufficiently high and I can keep my current plan or better for the same or less monthly fee.

All that matters is how it compares with similar specced handsets. If you believe that the OS itself can carry a premium then thats a personal opinion, but many people wont think it does. On a hardware level, if its coming in at the specs of an HTC one-s or similar then it wont be able to command a premium price.

It needs to sit at a similar level to others with similar hardware, regardless of the OS

RIM needs to sell the phone for AT LEAST $450. If they price it too low, carriers will sell it cheaper as a discount alternative to apple/android. RIM can't let 10 phones be sold as carrier "free" phones. Most consumers (myself often included) are too lazy to fully research a product, and assume the most expensive is the best. I'll get one on launch day regardless of the price, but I also remember buying my first . I only used my phone for calls at the time, but because of the high cost of , at the time, I assumed it must be better (and I was right).

Blackberry should only sell out of contract or unlocked devices directly on their website. Apple does this in the USA market and sells a unlocked 64gb iPhone for $850 plus tax. BlackBerry should follow something similar maybe not $850 for a 64gb but something like $700-750 for a fully unlocked device that can work on any GSM network.

A carrier add $10 per month to your contract to pay off the phone.
So if it's a 3 year term ( $360.00) add $199.00 and the price of the phone comes to $559.00. If the carrier wants to make $100.00 per phone, then the ASP to the carrier would be $459.00

So if Train A leaves Calgary at 7:45PM, and Train B leaves Baltimore Md, at 6:15PM; but the conductor of Train A was listening to Tupac, while texting on his Iphone 4s, and the conductor of Train B was listening to Mark Morrison's return of the Mack while using a Dev Alpha C- who will arrive in Bogota first?

Reading so many people argue over the meaning of one article is absolutely hilarious. Kat0908 i understood what you meant, and I commend you for trying to break it down for some of us. I'm just looking forward to getting my phone, and watching the money I have invested in RIM grow.

Yes, who knew an article that SHOULD be very basic would turn out to be so controversial lol. The only reason I'm so annoyed is because people are so quuick to say "omg if RIM makes their device over $400 then they're stupid and it really is the end of them!!" all because people don't take the time to actually understand what they're reading and just see a few words and numbers and are quick to post their RIM bashing uneducated "opinion".

With that said, I too can't wait to get one of these devices. The suspense is killing me. And clearly making tensions unusually high on the blog lol.

This is a lot like all of the people who were obsessing about the details of Lost. And when the last episode came out, everyone was wrong. There was no logic to it.
I think I am going to stop trying to analyze everything because it will just be whatever they think they can get away with.

IMO RIM should be concerned about flooding the market with BB10 devices rather than worry about making profits as of now. If their system is on a 10-year plan then they have enough time to recover loses with high-end models such as A-series.

Thinking of making money would put them in the the Win8 (surface) category, which means that they have an excellent product but just something aimed at the high-end consumer market which is limited considering global sales.

The tie-up should be with carriers to provide the BB10 handset at the lowest possible cost even if they need to bear some initial losses. Price point is extremely important, more over features, applications and functions.

Something 'new' cannot be the sole reason for a consumer to switch platforms, adding the bonus of an affordable device can help boost sales and leverage BB10 as a standard platform.

Hardware upgrades are always in the flow and slowly overtime as popularity and demand increases for BB10 devices, so can the price range.

The main reason why iPhone and High-end Androids/Wins are not long time players is because they are not affordable. How can you expect to cater to the masses if your product is not affordable to the majority? Emerging markets are not carrier dependent on mobile purchases and most of the markets purchase their device unlocked.

Although CU may very well be right, I think comparisons to the 9900 may be misleading. The 9900 is technically the worst of all possible worlds - it has everything including trackpad, touchscreen, and keyboard, and the assembly costs must be high. It also uses a very custom low volume screen.

The L type should have been properly productionised and uses only a touchscreen for input. It is therefore considerably simpler than the Bold and should cost less to make, given that it uses standard hardware that is made in high volume.

I suspect that the reason the keyboard version will come later is that it is going to cost more to make.

As long as the icrack is +1000$ / +750€ in Europe - no carrier strings attached, i'm guessing a similar pricing on RIM's part is a good enough move. Although i must say that if the screen ain't at least 4'' & isn't 1080p, then BB will loose many customers - that's my take at least. I'm not talking about cpu cores, since mapple showed that an OS designed for a specific cpu beats brute force of the Android counterparts.

Good article Chris, that 400-450 ASP mark that kept getting quoted by analysts seemed woefully low. RIM cannot recover unless they make a profit on handsets and thus need to get an ASP far above that $450 range. If the carriers are truly looking for a third player to avoid an Apple/Samsung duopoly then it shouldn't be too difficult to convince them to pay more for the product.

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